> It's a common misconception that risk management and risk reduction are synonyms. Risk management is about finding the right level of risk given external factors. Sometimes that means maintaining the current level of risk or even increasing it in favour of other properties.
What’s funny is I seem to have to explain this to senior management anew every 6-7 years. I know they teach it in management school, but it in the real world somehow people fall into the false equivalence when they get promoted. Often they adopt a cartoonish view of things because they can’t get the quantitative signals and everything decision effectively reduces to what I ironically term as anecdotal analytics.
I have this amusing heuristic for risk acceptance which I often use to help people approach decisions: you should kick the decision up to someone with higher authority if your signing authority is less than: risk coefficient times quantified exposure, less mitigation cost where mitigation is within signing authority AND/OR budgeted and authorized spend. I like to view mitigation and opportunity cost/benefit in a similar way so I have some idea of equivalences when evaluating tradeoffs.
It’s not original with me, I must have lifted it from some decades-past HBR article or 60’s rant on quantitative business management.
I could rant on various aspects of risk management application all day, thank goodness I've managed to quit before I really got started sharing...in my experience it’s been very helpful when applied in real world engineering implementations.
What’s funny is I seem to have to explain this to senior management anew every 6-7 years. I know they teach it in management school, but it in the real world somehow people fall into the false equivalence when they get promoted. Often they adopt a cartoonish view of things because they can’t get the quantitative signals and everything decision effectively reduces to what I ironically term as anecdotal analytics.
I have this amusing heuristic for risk acceptance which I often use to help people approach decisions: you should kick the decision up to someone with higher authority if your signing authority is less than: risk coefficient times quantified exposure, less mitigation cost where mitigation is within signing authority AND/OR budgeted and authorized spend. I like to view mitigation and opportunity cost/benefit in a similar way so I have some idea of equivalences when evaluating tradeoffs.
It’s not original with me, I must have lifted it from some decades-past HBR article or 60’s rant on quantitative business management.
I could rant on various aspects of risk management application all day, thank goodness I've managed to quit before I really got started sharing...in my experience it’s been very helpful when applied in real world engineering implementations.